In a technology driven universe, almost everything can be done online. Are you aware that this also applies to financial and accounting services? Bet you didn’t know that your CPA does not need to live near you! It mostly depends on your personal comfort when dealing with your financial situation. Hiring an accountant will take stress off of you in terms of your personal and small business financial information and having someone on board that you know you can trust, are comfortable working with, and who clearly knows their stuff can make all the difference. So, why should you consider and feel comfortable with an out of state accountant? Read on.
the survival of your business depends on having a solid financial plan, which means streamlined record-keeping, consistent financial analysis and, perhaps most importantly, cash flow management. The problem I typically see in small businesses is lack of knowledge about the most efficient and effective way to handle the accounting side of things
Some of you may have heard about the phishing attack that was perpetrated through Google last week. In case you didn’t though, check it out here. I personally experienced an incident through my non-profit e-mail around the same time as the Google phishing incident. I received a suspicious e-mail from the President which appeared legit and written in a similar fashion as that of the President. In my case the sender’s address did not match our non-profit’s extension which was a huge red flag. The request was also odd in itself and so I validated the e-mail with the President and once we determined it was a fake I immediately reported it to Google (our e-mail provider) as well as the rest of our team.
In light of these incidents, I’m writing this week to discuss the importance of online security. It’s a topic that is very hot among CPAs because we are always working hard to protect the sensitive information that is passed to and from our clients. Encrypted e-mail, secure portals, and passwords are just a few of the ways CPAs protect client information from data breach and compromise. I will highlight some best practices that general computer and internet users should consider below.
A Quick Note
Before I get to the 5 online security habits users should adopt I want to tell the tale of an incident of identity theft.
This past tax season when attempting to file a client’s tax return I was notified that my client had already filed a tax return. The IRS has safeguards in place that prevent the same person from filing more than one return for a given tax year and any tax preparer would have received the same notice for this client. Upon further investigation, we were able to determine that the client’s identify had been compromised. The IRS was skeptical as well and had already flagged the return that was filed as fraudulent. The good news is that we were able to identify this with enough time to get the return filed on time, but unfortunately my client has had to clean up any messes the fraudster made.
The moral here is that nobody is safe...
Okay, on to the tips!
#1 Use Internet Security / Antivirus Software
Security software is a cheap insurance policy to help protect from malicious attacks. Although I don’t have many recommendations, my advice is to pick something and use it. Whether you choose Norton, McAfee, BitDefender, Kaspersky, or Avast, you need the protection of a trusted internet security provider. These services are particularly helpful in detecting and preventing threats. Whether those threats are firewall holes, bogus website phishing for your passwords, or viruses designed to compromise your system and private information, a trusted security software platform can save you from hours of headaches from a breach or attack and potentially your financial well-being.
#2 Securely Transmit Sensitive Information
I can’t stress this one enough but if you do nothing else you should be religious about this one. I have heard arguments about how your information is probably already “out there somewhere” but that doesn’t mean you shouldn’t be cautious. You really shouldn’t be e-mailing unsecured files to anyone. Instead, use third-party services like Dropbox or Google Drive to share files with others safely. This not only reduces the chances of an e-mail becoming intercepted but also helps maintain version control over your shared documents. You can also ensure that collaborators have the correct access they need to a file by allowing them to edit or read-only files you share with them. If you must send sensitive information via e-mail, find a way to encrypt the message between you and the sender.
#3 Use Trusted WiFi Spots
Remember the last time you went to Starbucks and hopped on their free Wi-Fi? Well, you might want to reconsider doing so. Whenever you access a public network your information becomes available for all on that network to see. Sadly, hackers have developed sophisticated attacks they can use to scam you just from being on the same network. If your computer is not secured properly you may also be exposing the contents of your entire computer for all to see. Research Virtual Private Networks (VPNs) to learn more about how you can protect yourself when using a public Wi-Fi connection.
#4 Never Give Out Passwords
Never give out your passwords, ever! To protect you, no reputable software, app, or internet product vendor will ever request your password. They can either already see what it is, or, they typically verify your account another way that doesn’t require surrendering your password. If ever asked, consider if the vendor is reputable and if there is another way you can validate your account with the requester. When in doubt, don’t give them up.
#5 Stay Vigilant
You have to stay on your toes nowadays. Some might say the Internet is a blessing and a curse (in more ways than one), but you definitely need to stay vigilant. It's still a relatively new technology so it still has a "wild west" feel to it. Resetting passwords as well as revisiting (and refreshing) your security protocols every few months is well advised to keep attackers guessing. Using keychain style programs such as LastPass to store all of your logins in one place is helpful, but can also be a single point of failure if the master key is compromised. The nice thing is that those vendors typically generate very powerful passwords for you without you having to think about it. Also, most internet security software will run in real-time and on a scheduled basis so you can constantly have the software monitoring your system for flaws. Evaluate your security situation and make necessary changes to get setup to help prevent problems. Remember, it’s better to be safe than sorry.
I could go on and on about all the things you should do to stay safe and the above tips are certainly just the tip of the iceberg; but I’ll spare the audience. These tips should be considered whether you are using a mobile device or computer. Stay safe out there and think about what you’re doing, where you’re doing it, and with whom you’re dealing with before you do anything. Feel free to share your tips & tricks to staying safe on the internet in the comments section below.
Every year at tax time self-employed taxpayers are faced with a dilemma; how to deduct their business related vehicle expenses. The IRS allows for a choice between two methods, the standard & actual method. I’m writing to explain the difference and limitations between each method as they relate to business use of personal vehicles.
As mentioned, the IRS allows for a choice between two methods. The first method, the standard deduction, allows for a set rate per business mile driven of a personal vehicle. For tax year 2016 the rate was $0.54 per business mile driven and for tax year 2017 the rate is $0.535 per business mile driven. These rates change every year but are usually pretty close year-over-year.
Although the rate per mile under the standard method is generous, the rate was established to cover all of the maintenance on a personal vehicle (including but not limited to):
• Repairs & maintenance
• License & registration fees
• Parking fees & tolls*
• Vehicle cleaning expenses
• Towing charges (for repairs only)
• Auto club dues / roadside assistance service fees
• Lease payments
Expenses can add up fast depending on the type of vehicle and how much it is used. For taxpayers that choose the actual method, they would be allowed to deduct the expenses incurred for each of the items above (plus any other vehicle-related expenses that might not be listed). Of course there is limitation to the extent the vehicle is used for business purposes. To easily determine the business-use portion of expenses, a taxpayer should track total miles and business miles driven to create a percentage allocation.
*Note that parking fees & tolls are deductible regardless of method used.
Which Should You Choose?
The majority of taxpayers elect the standard deduction because it is simply easier and cuts down on the amount of recordkeeping. It may not always be the most favorable election though. If you don’t rack up miles throughout the year, drive an expensive vehicle, or drive one that has unusually high maintenance costs, you may benefit more from the actual method.
The only way to know which is more favorable is to track both methods each year and do the math. Typically, most taxpayers would find the calculations to be very close to one another. For those circumstances where one significantly outweighs the other, it might be worth changing methods. A pitfall here is that if you elect the actual method in the first year the vehicle is available for business use, then you are permanently locked in until that vehicle is retired. Choose wisely and consider electing the standard method in the first year so you can have the flexibility to switch back and forth between the methods (subject to some limitations).
When choosing the standard method, taxpayers will want to maintain a driving log of business-related miles they drove. This log should include the date, miles driven, the reason for the trip, individuals involved, and starting & ending addresses. Taxpayers can keep a paper written log in their vehicle for easy access and recording or they can create a spreadsheet to track trips. There are also apps such as MileIQ that will track miles automatically. This information will be necessary to accurately calculate business mileage at the end of the year and in case it is ever requested to support a mileage deduction.
If using the actual method, taxpayers should keep receipts for all vehicle expenses. This practice is consistent with that of any other business-related expense and can be tracked on the business’s books the same way. Since the majority of the receipts will be paper copy they can be scanned onto a computer or into the cloud for safe keeping and quick access if they are ever requested. Another idea is to keep them in a folder somewhere in the related vehicle for quick access. This is also beneficial for when the car is sold to prove maintenance history of the vehicle.
A note about leased vehicles. Lease payments can only be deducted when using the actual method. Additionally, if a taxpayer chooses the standard method in the first year of the vehicle’s lease, they are locked into the standard method for the entire life of vehicle’s lease period (including extended terms). The type of vehicle and expected number of miles driven over the life of the lease will play a large part in choosing the most favorable method.
BONUS: Medical & Charitable Service
In addition to the standard mileage rate for business miles, the IRS also allows a standard rate (only) for medical purposes and charitable service. The rates are much lower for each ($0.17 for medical & $0.14 for charity in 2017), but are often overlooked by taxpayers and can add deductions for those that itemize. Note that charitable service includes the miles driven to deliver donated goods or perform services to benefit a 501(c)(3). This is only true if the entire trip is for charitable service only. Any personal stops along the way to or from could disallow the deductible miles in full for that trip.
I hope you enjoyed this write-up on vehicle expenses. They are common deductions that most self-employed taxpayers incur, but are still overlooked. Leave your comments or questions below!
With the 2016 presidential election behind us I thought it would be a good idea to address the sudden 800lb gorilla in the room; Trump’s tax plan. Trump has released an aggressive tax plan that his administration believes will stimulate economic growth in the United States. Although the question remains whether part, or all, of the proposed changes will be passed into law, it’s best to be prepared and understand the consequences.
Given the number of changes in the proposal, I am only highlighting those that could have an impact on the average taxpayer and business owner.
This article is a good read but it does get a bit technical at points so brace yourself.
Tax Bracket Changes
There are currently seven income tax brackets starting at 10% and topping out at 39.6%. Trump’s plan condenses those seven brackets into three; 10%, 20%, and 25%.
Deductions & Personal Exemptions
Trump’s plan would increase the standard deduction from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for joint filers. This would result in fewer taxpayers itemizing their deductions. For those able to itemize, single filers would be capped at $100,000 in itemized deductions and joint filers would be capped at $200,000. An allowance for personal exemptions and the head-of-household filing status would also be eliminated as a result of the plan.
Under Trump’s plan, taxpayers would be entitled to an above-the-line deduction for children under the age of 13 for childcare expenses, but the proposed deduction would be capped at the state average for the age of each child. For example, if a taxpayer lived in NC and the average cost for childcare were determined to be $4,000 for a 10-year-old child in NC, a taxpayer with a 10-year-old child would be entitled to a deduction up to that amount. Any excess costs would presumably not be deductible. The childcare exclusion would not be available to single filers with total income over $250,000 or joint filers with total income over $500,000, and would be limited to four children per taxpayer per year. Additionally, any deduction for an eldercare dependent would be capped at $5,000 per year.
Something interesting to note is that this proposal would also be provided to taxpayers who use stay-at-home parents or grandparents as caregivers (as well as those who use paid caregivers).
Under President-elect Trump’s plan, the current corporate tax rate of 35% would be reduced to 15%, and the corporate alternative minimum tax rate would be eliminated. As a result, most business deductions would be eliminated. This rate would become available to all businesses, regardless of size, primarily to encourage them to retain profits within their business (and in theory stimulate more spending within the business).
Perhaps the biggest change to corporate tax rates would be for LLCs, partnerships, and S corporations, commonly known as “pass-through” entities. The proposal would make the pass-through portion of income taxable at the new corporate rate of 15% as well. This could have a huge impact on business owners depending on their income bracket.
There has been some discussion in the tax community about Trump’s proposal to eliminate depreciation, but I’m skeptical. Such a revolutionary change to a long-standing accounting principle seems unlikely. There is, however, a proposal in his plan, which would allow manufacturing firms to expense capital investments entirely in the year of purchase, but at the same time forgoing a deduction for interest expense on the same asset(s). Essentially, you would not be able to finance an asset, deduct the entire asset in the year of purchase, and continue to receive an interest expense deduction for the same asset.
How things shake out on the subject of depreciation will be interesting for sure.
If your business offers on-site childcare then you are aware of the tax credit that currently provides your business up to $150,000 for a portion of the costs associated with providing the childcare. Trump’s proposal would raise this credit to $500,000. Amounts paid to employees for childcare would still be considered business deductions, but would not be used to calculate this credit.
I hope readers have found this article insightful. Tax changes are never easy to navigate or understand but my goal was to make readers aware of some of the changes that could potentially be coming to us in the near future. There will undoubtedly be tax changes, which will have an impact on individuals and businesses beginning in 2017.
Confused? Concerned? Unsure? Feel free to comment below or send me a message to keep the conversation going.